OneWater Marine – 1Q23 Results

Introduction to OneWater Marine 1Q23 results

OneWater Marine reported its 1Q23 results, showing revenues of $366.6 million, a 9% increase compared to the same quarter last year. However, the net income was lower, at $11.4 million (vs $23.4MM), due to a lower number of units sold and a decline in same-store sales (14%), as well as higher costs, specifically increased interest expenses from higher levels of debt and inventory. The company attributes the lower number of units sold to the inflationary macroeconomic environment and higher interest rates, which make it more difficult for customers to finance their boat purchases.

Analysis of $ONEW 1Q23 results

The company also noted that supply chain problems, which had impacted manufacturers in the industry, have been resolved, and the industry is now returning to seasonality. Malibu Boats (its larger supplier) will present 1Q23 results next 7th February, so it will be interesting to listen to the other part. This quarter is traditionally the worst of the year for the industry, representing around 15% of annual sales and 10% of EBITDA. On the positive side, we see that the Service & Parts & others segment of the business is resilient and it is growing thanks to last year’s acquisitions.

OneWater discussed the impact of Hurricane Ian on their operations and noted stores in the area affected by Hurricane Ian are not yet fully operational. Additionally, also commented that due to the end of supply chain constraints, discounts are expected to return to pre-COVID levels. However, clients are not pre-booking for smaller boats, leading to an increase in inventory due to seasonality and recent acquisitions.

Having a look at the numbers, we see a huge impact of the rise in inventory ($147MM) on operating cash flows, the increase in long-term debt ($20MM) – apart from the $156MM tied to inventory (floor plan) – and we also want to highlight the $2.6MM equity-based awards which we consider excessive for a quarter like this.

OneWater Marine also reduced its guidance for 2023, reflecting a cautious outlook for the year ahead. However, we were quite surprised by the level of optimism that the management showed during the conference call, highlighting that January was a positive month in terms of revenues and that they expect to finish the year with higher same-store sales (despite -14% of this quarter).

Our thoughts about the 1Q23 OneWater Marine results

1Q23 OneWater results were quite bad. A little worse than expected two months ago, but in line with the one reported by MarineMax last week. Also, as its peer did, it cut the 2023 guidance. We are quite surprised by the optimism that management showed during the conference call. However, we remain more conservative in our outlook, as we detailed when we presented the investment thesis in October, we expect sales to be impacted by 25-30% this year, given the impact of higher interest rates on a business where a significant percentage of customers finance their purchases with debt and the uncertainties of the environment.
A critical factor is OneWater’s need to manage its inventory levels well, as it is expected to cost over $20 million this year (interest floor plan). Additionally, we will be monitoring the company’s debt reduction, as we believe that it is more prudent for the company to do it instead of repurchasing shares of M&A activity, which we expect to remain quite low for the rest of the year.

Conclusion $ONEW

We are not happy with this 1Q23, but after MarineMax results last week, they were quite predictable, so we traded it a little bit taking advantage of the market’s euphoria. Also, we see some yellow flags as we do not fully agree with their equity-based awards. We are a bit concerned about the debt they have, as it increased considerably last year. However, if they are right and boat sales continue as predicted in the guidance, its strategy will become this stock in a multi-bagger. Nonetheless, we are a bit more prudent and see considerable operative leverage. So, at the moment, we hold and wait. Let’s see and analyse what OneWater’s peers say in their conference calls, contact with OneWater to share our questions and try to have a clearer view of what to expect for this industry in the next 12 months.